DETROIT — After months of struggling to stay alive on government loans, Chrysler finally succumbed to filing for bankruptcy protection Thursday, pinning its future on a top-to-bottom reorganization and plans to build cleaner cars through an alliance with Italian automaker Fiat.
The nation's third-largest car manufacturer filed for Chapter 11 bankruptcy protection in New York after a group of creditors defied government pressure to wipe out Chrysler's debt. The company hopes to emerge quickly as a leaner, more nimble company, probably with Fiat as the majority owner. In return, the federal government agreed to give Chrysler up to $8 billion in additional aid and to back its warranties.
"It's a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry," President Barack Obama said.
Chrysler said it will close all of its plants starting Monday, and they will stay closed until the company comes out of bankruptcy. At least three Detroit-area factories sent workers home Thursday after suppliers stopped shipping parts over fears they would not be paid.
CEO Robert Nardelli announced he would step down when the bankruptcy is complete and take a post as an adviser with Cerberus Capital Management LP, which will give up its 80 percent ownership of Chrysler under the automaker's plan. Vice chairman Tom LaSorda, who once ran the company when it was owned by German automaker Daimler, said he would retire.
The government has sunk about $25 billion in aid into Chrysler and rival General Motors Corp.
Under the deal, Chrysler would gain access to Fiat's expertise in small, fuel-efficient vehicles. The U.S. automaker eventually wants to build cars that could get up to 40 mpg.
In exchange, Fiat would initially get 20 percent of the company, but its share could rise to 35 percent if certain benchmarks are met, and Fiat said Thursday it could get an additional 16 percent by 2016 if Chrysler's U.S. government loans are fully repaid.
First, though, bankruptcy court Judge Arthur Gonzalez will have to sort out the issue of Chrysler's creditors, who hold $6.9 billion of the company's debt. The company's first hearing is set for today.
The Treasury Department's auto task force had been racing for a week to clear the hurdles that led the government to reject Chrysler's initial survival plan one month ago. Along with the Fiat deal, Chrysler adopted a cost-cutting pact with the UAW on Wednesday.
Four of the largest banks holding 70 percent of Chrysler's debt agreed this week to a deal that would give them $2 billion. But a collection of hedge funds refused to budge, saying the deal was unfair and would return only a fraction of their holdings.